September 13, 2011

China 2011

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Over the next 15 years the global addressable market for luxury goods is expected to grow by 600 million consumers, provoking growth forecasts 2.2 times GDP. Much of this growth is to come from one market: China.

In 2000, the Chinese market accounted for a fraction of luxury sales globally. Year after year of double-digit growth has resulted in tens of millions of Chinese consumers armed with disposable income and a voracious appetite for luxury goods. In 2009, China overtook the United States to become the second largest luxury market. By 2015, it is projected to overtake Japan, and become the largest luxury market.

The algorithm for success in China is different:

The Chinese luxury purchaser is much younger. McKinsey reports that 73 percent of Chinese luxury consumers are under the age of 45, and upwards of 45 percent are under the age of 35, suggesting that the majority of prestige purchasers are digitally native.

In the U.S., the average female prestige consumer registers household income of $150,000 and spends $3,000 annually on handbags. In contrast, the average female prestige consumer in China makes $17,000 and spends $2,000 annually on handbags. Often these purchases occur after two to three months of research and consideration, most of it done online.

With 75% of wealth creation expecting to occur of Tier I cities, luxury companies also face huge challenges with brick and mortar build-out expediting the shift to e-commerce.

Finally, increasing wariness of counterfeit merchandise, coupled with significantly lower prices abroad, has led to 56 percent of Chinese luxury purchases occurring outside of China, suggesting that a brand's digital marketing investments on the Mainland drive sales in Shanghai, Beijing. New York, Paris and Hong Kong.

Digital in China is also different. Not a single global Internet leader is #1 in China.

Google continues to lose share in the Chinese search market since redirecting searches to Hong Kong in early 2010. A second quarter report from consulting firm, Analysys International registered the market share of local search engine Baidu at 76 percent versus Google's 19 percent. This is a dramatic shift from 2009, when Baidu controlled 58 percent of the market versus Google's 36 percent.

With Facebook and Twitter blocked, the ecosystem in social media is similar, and we measure efforts on seven native Chinese social media platforms. Unlike most markets where network effects have led to natural monopolies, the proliferation and fragmentation of Chinese social networking sites presents a huge challenge to marketers.

A testament to the pace of change; Chinese micro-blogging platform Sina Weibo was not analyzed in our May 2010 study. Launched in April 2010, the platform has added 10 million+ users per month and recently topped 200 million registered accounts. Sina Weibo has become the platform of choice for prestige brands - 57 percent of the brands in the study now maintain an official presence.

Our thesis is that success in the world's fastest-growing luxury market is inextricably linked to digital competence.

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